SURESH CHAND GUPTA, GANDHIDHAM V. PR. CIT, RAJKOT-1, RAJKOT

ITA 43/RJT/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9806 (ITAT-RAJKOT)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 02-03-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law; Difference of opinion; Assessment record; Prejudicial to interest; Change of opinion; Rule 8D
• Section: 263; 143(3); 142(1); 14A; 69A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Shri Sureshchand Gupta Plot No. 8, Secto r-8, Kiran House, Gand hidha m (Kutch ), Gujarat-37 0201 PAN: AB ZPG6 744K Vs The Pr. Commi ssioner o f Inco me Tax, Rajkot-1, Aayak ar Bhawan, Race Course Rin g Ro ad, Rajkot-360 001 (Appellant) (Respond ent) Asses see by : Shri M ehul Ranp ura, A. R. Revenue by : Shri S anjeev Jain, CIT-D. R. Date of hearing : 08-07 -2022 Date of pronouncement : 28-09 -2022 आदेश/ORDER PER BENCH:- This appeal has been filed by the Assessee against the order passed by the Ld. Pr. CIT-1, Rajkotin Order No. ITBA/REV/F/REV5/2021- 22/1038847977(1) vide order dated 18.01.2022 passed for Assessment Year 2017-18. 2. The assessee has taken the following grounds of appeals:- “1. The grounds of appeal mentioned hereunder are without prejudice to one another. ITA No. 43/Rjt/2022 Assessment Year: 2017-18 ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 2 2. The order passed by Pr. Commissioner of Income-tax, Rajkot-1 [hereinafter referred as to the “PCIT”] is bad in law, invalid and requires to be quashed, the same may kindly be quashed. 3. The Ld. PCIT erred on facts as also in law in alleging that the order u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred as to the “Act”] is erroneous and prejudicial to the interest of revenue as the AO had not made inquiry & verification in respect of allowability of interest expenses claimed against the interest income in terms of provision of section 57(iii) of the Act and thereby setting aside the order passed u/s. 143(3) of the Act dated 27.08.2019. The order u/s 263 of the Act is totally unjustified on facts as also in law therefore the same may kindly be quashed. 4. Your Honour’s appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.” 3. The brief facts of the case are that the assessee filed Return of Income for Assessment Year 2017-18 disclosing income of Rs. 39,45,100/-. The assessment was completed under Section 143(3) of the Act accepting the returned income of Rs. 39,45,100/-. The Principal CIT initiated proceedings under Section 263 and set-aside the assessment order is being erroneous and prejudicial to interest of Revenue, with the following observations: “2. On particular examination of the records, it is observed that the assessee has shown gross income of Rs. 29,04,777/- in the head of income from other sources and claimed expenditure of Rs. 35,73,682/- ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 3 on borrowed money taken from bank and various persons and the same was claimed as deduction u/s. 57(iii) of the Act. The provisions of section 57(iii) of the Act clearly stipulates that “the expenditure must be laid out or expended fully and exclusively for the purpose of making or earning of income.” The evidences and materials produced on record are not sufficient to discharge onus upon the assessee to prove justification of such large interest expenditure. It is a settled legal proposition that when the claim of exemption / deduction is made the onus is on the assessee to demonstrate the genuineness of such claim. The nexus between the interest expenditure and interest income earned is not properly established. Hence, the conditions to claim the benefit u/s. 57(iii) of the Act are not satisfied. Further, on going through the balance sheet of the assessee, it is seen that the assessee has made investment in immovable property amounting to Rs. 1,24,46,585/-. The assessee could not produce any documentary evidences to establish that the loan amount was not utilized for purchasing immovable properties. Further, the assessee has also made investment in the firm in which he is a partner to earn share of profit which is not included in the total income of the assessee as per the section 10(2A) of the I T Act, 1961. Therefore, the section 14A r w Rule 8D of the Act is applicable here. Further, it is also observed that the assessee has availed loan facility and against the same the assessee has debited the interest expenses amounting to Rs. 35,73,682/- in his P & L Account. However, the assessee has given interest free loans to 4 parties which ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 4 are sister concerns and related parties of the assessee. On the one hand the assessee did not charge interest on the loan and advances given to the related parties and on the other hand he has claimed interest expenses on the borrowings. At the same time, it is noticed that the assessee has also made investment in various companies totaling to Rs. 78,06,400/- which is capable of earning exempt income. In view of the above, it may be concluded that if the funds were not blocked in interest free loan / investment in firm / companies / immovable properties, they would have been available to the assessee which would have obviated his need to borrow funds carrying interest from banks. 3. Thus, during the assessment proceedings, The AO had not verified the same. This has rendered the order erroneous as well as prejudicial to the interest of the revenue. ......... It has been noticed that in the present revisionary proceedings the assessee has submitted submission of 11 pages while in the original assessment proceedings it has made the submission of half page as extracted above. Thus, various points have been raised in the submission before this office needs factual verification with the records of the assessee and it is not possible to examine the same by this office in the present revision proceedings. Various points raised before this office have never been before the AO due to the reason that neither the assessee has submitted those facts to the AO nor the ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 5 AO has called for and examined in detail such aspects in the assessment proceedings. It has also been noticed that the assessee has paid the5 interest rate to Kotak Mahendra Bank Ltd @ 13% but to the various group concerns the advances / lendings have been given at the lower interest rate i.e. @ 12%. Thus, the assessee has charged the less interest rate as compared to thehigher rate of interest paid to the bank for which no justification has been provided. The above facts will indicatethat AO has not conducted any verification / inquiries inrespect of interest expenditure claimed against the interest income in view of the provisions of section 57(iii) of I T Act. As has been noticed that the funds have been utilized for granting interest free loans, investment in related firms / companies, investment in immovable properties. So, while granting the claim of interest, the AO ought to have enquired that no interest bearing funds have been utilized for the purpose other than interest generating assets / investments. The A O ought to have examined / verified the rotation of the funds i.e. in flow and corresponding outflow with the help of bank statement / bank book so as to exactly know the utilization of the borrowed funds and the purpose thereof. However, no such enquiry / verification have been carried out by the AO in the assessment proceedings. Such cases where the assessment has been completed without conducting any inquiries tantamount to erroneous orders as also order prejudicial to the interest of Revenue. For such proposition of law.” ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 6 4. The assessee is in appeal against the aforesaid order passed by Principal CIT. The Counsel for the assessee argued that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of Revenue. He argued that the facts and issues raised in the notice under Section 263 of the Act have been verified in detail by the AO in the course of assessment proceedings and such any modifications thereto would be tantamount to change of opinions which is not permitted under the Act. All the detailed queries in this regard were asked by the AO during the course of assessment proceedings, in response to which the assessee filed detailed reply, which was accepted by the AO after due application of mind. The Ld. Counsel for the assessee drew our attention to copies of notices issued by the AO under Section 142(1) of the Act dated 28-01-2019 and 17-06-2019 in which specific queries in this regard were asked by the AO. The Counsel for the assessee further drew attention to copies of replies dated 02-02-2019 and 22-07-2019 filed by the assessee before the AO. He also drew our attention to copy of Audit Report along with audited financial statement for the assessment under consideration, which was filed before the AO for his consideration. Accordingly, the Counsel for the assessee argued that all the queries forming part of the notice under Section 263 of the Act was already enquired into by the AO during the course of assessment proceedings and the assessee had filed a detailed reply explaining the same. Accordingly, it is not a case where the AO had not made enquiry as required and assessee had also furnished detailed replies to the same. Therefore, the assessment order was passed after making due enquiries and due application of mind by the Assessing Officer to the given set of facts. In response, the Ld. DR relied upon the observations made by the Principal CIT in the 263 order. ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 7 5. We have heard the rival contentions and perused the material on record. 6. Before deciding the issue, it would be useful to refer to some Supreme Court decisions on this subject which would throw useful light on the scope of enquiry under Explanation (a) to Section 263 of the Act. 7. Recently the Supreme Court of India in the case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 294 (SC) dismissed SLP filed by the assessee against order passed by High Court holding that where assessee-company had received unsecured loans from two different companies and Assessing Officer had made inquires in detail and accepted genuineness of same, such view of Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of Revenue. The facts of this case were that respondent assessee has filed its Return of Income showing total income of Rs. 62,55,900/- which was assessed under Section 143(3) of the Act, 1961 by an assessment order dated 14 th March 2016. The respondent company received unsecured loans from M/s. GeorgettTradecom Pvt. Ltd. and M/s. PurbaAgro Food Pvt. Ltd. amounting to Rs. 2.49 Crore and the Assessing Officer allowed these unsecured loans. The Principal Commissioner of Income-tax invoked Section 263 of the Act, 1961 for revising the assessed income of the respondent assessee. It was noticed by the PCIT that the unsecured loans obtained by the respondent assessee are shown as investment in the name of the assessee in the share application as well as in the balance sheet of the respective companies. The PCIT passed an order under Section 263 of the Act directing the Assessing Officer to pass fresh ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 8 assessment order under Section 143(3) of the Act, 1961 on the aspect of unsecured loans shown by the respondent assessee. The Hon’ble Supreme Court made the following observation while deciding in favour of the assessee: “Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.” 8. The Supreme Court in another recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revisional order making addition to assessee's income under Section 69A in respect of on- money receipts, however, said order was set-aside by Tribunal holding that AO had made detailed enquiries in respect of on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revisional order under Section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 9 carried out detailed inquiries which included assessee'son-money transactions and Tribunal thus set aside revisional order passed by Commissioner. The High Court upheld Tribunal's order. The Supreme Court while dismissing the SLP filed by the Department held as under: “We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed” 9. The Supreme Court in the recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: “Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 10 held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed” 10. The Supreme Court in the case of Principal Commissioner of Income-tax--8 Mumbai v. Sumatichand Tolamal Gouti [2019] 111 taxmann.com 287 (SC) held that where High Court upheld Tribunal's order holding that AO had made detailed enquiries while allowing assessee's claim for deduction of business expenditure and, thus, revisional order passed by Commissioner was not sustainable, SLP filed against High Court's order was liable to be dismissed. The facts of this case were that in course of assessment, Assessing Officer allowed assessee's claim for deduction of certain expenditure on purchase of CDs on Jain Religion by expending an amount of Rs. 10.4 crores, after due examination. The Commissioner passed revisional order holding that Assessing Officer had not carried out any enquiries as to nature of expenditure being capital or not. The Tribunal, however, allowed assessee's appeal holding that Assessing Officer had carried out detailed enquiries and taken a view which was a plausible view. Accordingly, Tribunal set aside revisional order passed by Commissioner. The High Court upheld order passed by Tribunal. The Supreme Court on consideration of above facts held that SLP filed against High Court's order was to liable to be dismissed. The Supreme Court made the following observations, while passing the order: “It is by now well settled that, the Commissioner can exercise revisional powers under Section 263 of the Act only when it is found that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. In the present case, the ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 11 Tribunal noted the observations of the Assessing Officer in the order of remand to the effect that Jain munis do not advocate spread of religion through use of computers, source of electronic media is usually shunned, very small section of the community uses computer technology for religious purposes as plenty of printed literature is available in the market. All these factors led to the market value of the CDs declining dramatically. It was on account of these reasons, that the assessee had incurred substantial loss arising out of reduction in the value of stock lying at the end of the year. The Tribunal, therefore noted that the Assessing Officer had carried out detailed enquiries and taken a plausible view.” 11. The Supreme Court in the case of CIT v. Greenworld Corporation [2009] 181 Taxman 111 (SC)/[2009] 314 ITR 81 (SC) held that an order of assessment passed by ITO cannot be interfered with only because another view is possible. 12. The Karnataka High Court in the case of CIT v. Gokuldas Exports [2012] 20 taxmann.com 491 (Karnataka) held that the phrase 'prejudicial to the interests of the revenue' under section 263 has to be read in conjunction with the expression 'erroneous' order by the Assessing Officer. Every loss of the revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. 13. Now coming to the present of the case, the return of income was selected for limited scrutiny for verification of "Large deduction claimed under Section 57”. Accordingly, the AO issued notice dated 13-08-2019, wherein issue of “deduction against income from other sources” was asked. ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 12 Thereafter, vide notice under Section 142(1) dated 28.01.2019 the AO called for various details in respect of deduction under Section 57 of the Act. Subsequently notice under Section 142(1) were issued on 17.06.2019 raising query as to how the interest paid for loans taken is directly attributable to the interest income earned from the loans given i.e. the assessee is required to prove the direct correlation with loan given and loans taken as per the requirement of Section 57(iii) of Income Tax Act, 1961. 14. In response to the aforesaid notices, the assessee filed reply on 02-02- 2019 and another reply was filed by the assessee on 22.07.2019 in response to the afore-said notices. As regards the issue of payment of interest on borrowings and receipt on advances, we observe that the assessee vide Para 2 of his reply dated 22.07.2019 attached a chart showing details of rate of interest paid and received. Besides, the assessee vide last Para of his letter dated 22.07.2019 has brought to the notice of the AO that issue on hand was also raised in A.Y.2016-17 which was selected for limited scrutiny under CASS and after considering the facts of the case accepted his submission. Thus, after considering the entire facts in entirety and after application of mind, the AO accepted the assessee's explanation. 15. As regards the second issue of investment in immovable property of Rs. 1,24,46,585/- raised in the above notice, Ld. Counsel for the assessee submitted that Annexure 'B' of the tax audit report (which was submitted during the course of assessment proceedings) reflects investment in immoveable property at Rs. 1,01,86,913/- as on 31.03.2016 and additions of Rs. 26,03,316/- mainly on construction to the existing property except one new property of Rs. 13,37,000/- purchased at K.K. Vihar Ajmer was made ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 13 during the year. The balance sheet attached with the ROI reflects Housing loan from HDFC bank at Rs. 37,08,140/- and payment of interest on housing loan of Rs. 3,85,088/- reflects in capital account. Therefore, since entire facts are available on records, the AO did not require any further details particularly where the assessment is selected for limited scrutiny . 16. In our view it is a well settled position of law that if from the assessment records, it is evident that the Ld. AO has made due enquiries in response to which assessee has filed detailed submissions, then even if the assessment order does not discuss all aspects in detail with regards to claim of the assessee, it cannot be held that the order is erroneous and prejudicial to the interests of the Revenue. The above proposition has been upheld in the case of CIT v. Reliance Communication 69 taxmann.com 109 (Bombay), Smt. Anupama Bharat Gupta v. ITO in ITA 1685/Ahd/ 2018, Goyal Private Family Specific Trust [1988] 171 ITR 698, CIT v. Mahendra Kumar Bansal [2008] 297 ITR 99 (All.) (para 10) etc. We, thus, find no error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT. The Ground of appeal raised by the assessee is thus allowed. 17. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28-09-2022 Sd/- Sd/- (WASEEM AHMED) (SIDHHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 28/09/2022 Tanmay, Sr. PS TRUE COPY आदेशक त ल पअ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue ITA No. 43/Rjt/2022 (Shri Sureshchand Gupta vs. PCIT) A.Y. 2017-18 14 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot Strengthened preparation & delivery of orders in the ITAT 1) Date of dictation 26/09/2022(Dictate in Dragon) 2) Date on which the typed draft is placed before the Dictating Member & Other Member 26/09/2022 3) Date on which the approved draft comes to the Sr. P.S./P.S. /09/2022 4) Date on which the fair order is placed before the Dictating Member for pronouncement /09/2022 5) Date on which the fair order comes back to the Sr. P.S./P.S. 28/09/2022 6) Date on which the file goes to the Bench Clerk 28/09/2022 7) Date on which the file goes the Head Clerk 8) Date on which the file goes to the Assistant Registrar for signature on the order 9) Date of Dispatch of the order